Australian SMEs struggle to manage cash flows due to late payment, findings reveal

Insights from reports on late payments, transactions, and a survey show Australian SMEs are just treading water to survive, and with banks tightening their lending and government handouts having disappeared, the risk of survival has increased. Managing receivables by accurate invoicing can help small businesses improve their cash flows during tough times.

Want to know more about this topic? Listen to RIABU's Simon Littlewood and Mark Laudi discuss this issue on our podcast, Be First In Line To Get Paid:

The report published by Payment Times Reporting Regulator highlights that just under half (47%) of the Australian companies with yearly sales of above 100 million Australian Dollars were able to pay their suppliers by the deadline on 80% of their invoices.

Only one in three (31%) of large corporations paid more than 80% of their small business invoices within 30 days, which is the benchmark set by the Business Council of Australia.

Australian Small Business and Family Enterprise Ombudsman Bruce Billson said: “This is an incredibly disappointing result” and he asked big businesses to “show leadership, respect, and care for our small businesses and to pay their bills on time.”

“Small businesses are not asking to be paid early, just to be paid on time. Put simply, good business pays,” he added.

Calling the findings "mediocre," Billson emphasized the need for the business community to take the 30-day threshold seriously.

According to him, the situation has gotten worse since the pandemic started as requests for assistance to resolve payment disputes now account for 40%, up from 25% before the pandemic.

Meanwhile, Xero’s report called “Crunch: Cash flow challenges facing small businesses” analyzed the inflow and outflow data from more than 200,000 businesses across Australia, New Zealand, and the UK. It found that nine out of 10 small businesses (92%) struggle with negative cash flow at least once a year.

With respect to Australian SMEs, 92% of small businesses experienced at least one month of negative cash flow in 2021, and for 20%, it lasted more than six months.

The report also reveals persistent cash flow difficulty, with 4.2 months on average having more expenses than income in 2021.

Adding to the list of troubles, the Small Business Loans Australia's survey of 253 Australian SMEs portrays a bleak picture of the challenges faced by SMEs in the nation. They were tasked with predicting how their businesses would do in the event of consumer spending declines.

Findings showed one in three (34%) of SMEs expect their businesses to survive less than six months if the recession was hit while one in ten (14%) said their business was unable to survive a recession at all.

These reports show that Australian SMEs are struggling to keep their business afloat due to decreased margins, limited cash flow and lower consumer confidence.

However, SMEs can improve their cash flows even during tough times if they avoid making mistakes in invoices sent to customers.

Bruce Billson highlighted that out of the roughly 1.2 billion invoices exchanged in Australia every year, one in five (20%) are sent to the wrong person and more than one in four (30%) have incorrect information.

RIABU advocates implementing the Virtuous Revenue Cycle (VRC) in which one of the crucial steps is prompt and accurate invoicing that includes understanding customer requirements and having a written process of invoicing.

Early customer communication and having a quick discrepancy resolution process in place can have a profound impact on accounts receivable and, as a result, ensure that you are paid on time.

Get more tips on effective cash flow management from our book, Let The Cash Flow. To find out more about how RIABU helps small businesses get paid on time, visit RIABU.com